I need some advice on what you seasoned investors would do in my situation.
There is a house down the street that is vacant. I was finally able to contact the owner who lives 4 hrs away. Here is the situation.
The house needs quite a bit of work…my initial estimate is 60K.
The FMV of the house is 132K based on both rent (10%cap) and houses in the area. In actuality the house once fixed could be worth as much as 150K.
The owner who has only been in the country for a few years works in Brooklyn, and came upon the property as a “bad” investment. From the research I was able to do he bought it for 20K. For whatever reason he has left it sit vaccant for two years and been so busy that he hasn’t paid the taxes on it.
When we talked on the phone he told me that he wants to hold onto the property so that in 2-3 years when he isn’t so busy he can use it as a summer home or retirement property. However he would like me to fix it up for him, since I have rehabbed my own home and am pretty active in the neighborhood.
I don’t like the idea of not having control of the property especially when I am working on it (insurance). I also want to make at least 20k off of whatever deal we come up with…more if I do the work myself.
Any ideas how to approach this? I have a few but wanted your input first.
i think there are a number of ways to do this, but they all seem to involve a number of headaches. (these are in the order from best to worst, in my opinion)
1-
buy it from him (at a price that allows for the back taxes, repairs needed, etc. and is low enough to cash flow), and write out an option for him to buy it back from you in 2-3 (but not sooner) at a price that you can profit from in the end after repairs and etc… this gets it off his mind while he’s too busy for it and gets his taxes up to date.
2-
be his property manager, he can pay you for the repairs and etc. (with profit to you of course) and you’ll take a significant portion of the cash flow from the rents. again, contract it for 2+ years.
3-
partner with him, he puts up the $ for the repairs through a heloc or whatever, and you get the cashflow or something.
i think 2 & 3 would be more hassle than they’re worth. 1 seems to make the most sense to me. if he wants to have the property in 2-3 years it may be hard to do anything where you could make enough money for it to be worth your time and effort.
There seems to be a lot of equity in that property.
Have the owner get a loan on the property to pay you for the rehab work.
I would sign a contract with him that says I get paid x number of dollars for the work and a percentage of the equity and appreciation at the end of the two year period
You could partner with him and when he decides to move back into the property of whatever, he will have to pay you out. While the two years go by, you could lease the property for him and get paid a portion of the rent for your management assistance.